It is a great pleasure for me to address the 2012 Forum on China-ASEAN Free Trade Area. In my view, CAFTA represents a milestone in South-South cooperation as it covers almost a third of the world population.

As you are aware, developing countries are increasingly making use of South-South regional integration to promote scale economies, diversification and resilience. UNCTAD statistics show that in 2011 South-South exports represented 55 per cent of developing countries' exports - or nearly a quarter of world exports. It is noteworthy that South-South flows have been heavily focused on the Asian region. Intra-Asian trade accounts for around three quarters of South-South trade and for an even higher share of South-South FDI flows. This reflects, to a large extent, the successful industrialization drive across large parts of East Asia. At the same time, closer trade and economic cooperation between China and ASEAN since 2004 has no doubt played a facilitating role in expanding intra-Asian trade.

From 2004 to 2011 China's merchandise exports to ASEAN quadrupled from $43 billion to $170 billion, and ASEAN's merchandise exports increased more than threefold from $42 billion to $142 billion. As a result, ASEAN's share in China's exports has increased from 7.2 per cent to 9 per cent, and China's share in ASEAN's exports has increased from 7.3 per cent to 11.4 per cent during this period. The CAFTA agreement also stimulated investment among the parties: FDI flows from China to ASEAN have increased from around $700 million in 2004 to $4.2 billion in 2009 (before falling to $2.9 billion in 2010). Though small, ASEAN's FDI to China has also increased recently, from $3.3 million in 2002 to $5.5 million in 2008.

Despite these impressive numbers, the trade creating effect of CAFTA may be further strengthened by extending trade cooperation between the parties to reduce transaction costs, especially non-tariff related costs, increasing cooperation in development of infrastructures services, promoting services trade and integrating the three Least Developed Country (LDC) parties into the regional supply chains. Allow me, therefore, to expand on a few areas, which deserve attention in this regard:

One possible area to focus on to reduce costs is trade facilitation, addressing administrative, institutional and physical barriers associated with customs clearance procedures and trade logistics throughout the entire trade logistics chains. Streamlining customs procedures, modernizing and automating customs infrastructures, including based on international best practices, so as to reduce time and costs incurred to move goods across the border will be critically important for time-sensitive inventory management and sourcing and delivery of goods traded within GVCs.

The second possible area for reducing transaction costs and enhancing competitiveness relates to removal of non-tariff measures associated with SPS- and TBT-related product standards and technical regulations, conformity assessment and certifications. UNCTAD analysis shows that on average, the contribution of NTMs to market access restrictions is often more than twice the size than that of tariffs. Of course, as these regulatory measures also address legitimate public policy goals (e.g., consumer protection), they cannot be simply eliminated, but instead require regulatory harmonization and cooperation, such as mutual recognition and equivalence to minimize their negative and distortionary effects. To allow traders to derive genuine benefits from the China-ASEAN FTA, China and ASEAN should take collective action in addressing NTMs. Any NTMs should specifically target the market failures they are trying to correct so as to minimize the distortionary costs imposed on the economy and trade.

It is worth mentioning that China and ASEAN have already made a positive move in addressing standards for trade in organic products. Under the framework of the joint UNCTAD-FAO-IFOAM Global Organic Market Access, China and several ASEAN countries have worked together and developed the Asian Regional Organic Standard (AROS). If this standard is implemented as intended, it will greatly facilitate the production and trade of organic products in this region.

A third area deserving further attention relates to cooperation in the infrastructure services sector, including transport, ICT and energy. In order to sustain fast growth in China and ASEAN, infrastructure provision remains a key challenge for the years to come. Cooperation is thus needed among neighboring countries not only to finance the projects and lower construction, maintenance and operating costs, but also to maximize the ensuing benefits related with improved productivity and trade capacity. Since the late 1990s, growing cooperation in infrastructure between developing East Asian countries has been a major factor in decreasing trade costs and stimulating intra-regional trade. Establishing China-ASEAN wide infrastructure networks and strengthening substantive regulatory cooperation among regulators can make good contribution to improving the quality of these services in this region. The beneficial effects of such regional coordination in infrastructure development on trade can be seen, for example, from the implementation of the Greater Mekong Subregion (GMS) Economic Cooperation Programme, an important component of which is the Cross-Border Transport Agreement Framework. The GMS programme has a unique merit as it involves the three LDC parties to the CATFA.

A fourth area to explore is promoting trade in services between China and ASEAN countries. Unfortunately, so far there are very few statistics available on trade in services in CAFTA, so there is a need for better data collection. However, it is likely that accelerating services liberalization by expanding the scope of services coverage and increasing the level of liberalization could result in new trade flows.

This is particularly relevant as the services sector tends to have a deep impact on development. UNCTAD's research findings have shown that in Zambia, Malawi and Uganda, access to financial services, transport services, marketing services and information services to a large extent determined the gains accruing to farmers producing export crops. Intermediate services, such as transport, telecommunications, financial services, business services including professional services and research and development (R&D) services are important inputs to other economic sectors. They are also contributors in the global supply chains. Here, the recognition of suppliers' qualifications and facilitating their movement across the border plays an important role. Compared with liberalization of merchandise trade under CAFTA, there is some way to go for China and ASEAN in terms of services liberalization. Therefore facilitating services trade among CAFTA parties should become a priority for future China-ASEAN trade cooperation.

Finally, CAFTA should make efforts to integrate its LDC parties into the regional supply chains as well as infrastructure building and sharing. The international community has set an ambitious target in the Istanbul Programme of Action that half of the LDCs should be able to graduate by 2020. To help these countries graduate from the LDC list, providing duty-free and quota-free (DFQF) treatment to their exports and allowing them to enjoy longer transitional periods in opening their markets are necessary but not sufficient conditions. Developmental cooperation such as infrastructure building as well as assistance in building their productive and trade capacity are also needed. As China and other more advanced CAFTA parties shift their focus to more sophisticated manufacturing and services over time, incorporating these LDCs into the regional supply chains by assuming labour intensive manufacturing and services activities that feed into the supply chains of more advanced regional partners can make positive contribution to increasing the productive and trade capacity of these countries. To that end, targeted financial support from other CAFTA parties to these LDCs is necessary.

Ladies and Gentlemen,

The past decade has witnessed a remarkable transformation in the global economy, driven by the force of trade that enables nations to specialize and create conditions necessary for growth. China and ASEAN economies are among the best examples of the countries that seized the opportunity to benefit from trade. Encouraging the kind of trade that supports inclusive and sustainable development is a major challenge for many developing countries. UNCTAD has been endeavouring to assist developing countries to meet this challenge. UNCTAD XIII held in April this year in Doha, Qatar, forged an international consensus around the imperative of making globalization more development-centred, and ensuring that regional integration and cooperation initiatives, alongside with the multilateral trading system, provide an enabling environment towards that objective. Enabling policies are important particularly at a time when the world economy faces yet another period of economic uncertainties. CAFTA can be such an enabling environment for trade to be an effective engine of growth and development.

CAFTA is significant for both China and ASEAN as each represents "natural trading partner" to the other. I am confident that, with strong political will and pragmatism from all parties to facilitate trade and promote common development in the region, trade cooperation between China and ASEAN will be further deepened and widened. As large and dynamic economies deeply integrated into global production networks through GVCs, China and ASEAN can jointly act as a major locomotive for global economy, and CAFTA will make important contribution to that effect. In this sense, the economic potential of CAFTA is not limited to China and ASEAN but can help spur the development of the entire region. Thus, CAFTA is good for the parties, for the Asian region, and for the global trading system. We in UNCTAD stand ready to support and assist China and ASEAN in their efforts to make CAFTA an instrument of dynamic trade growth, economic transformation and development.